Johannesburg, 23 September 2016 — Global Credit Ratings has today affirmed the national scale ratings assigned to Safari Investments (RSA) Limited of BBB(ZA) and A2(ZA) in the long term and short term respectively; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit ratings to Safari Investments (RSA) Limited (“Safari”) based on the following key criteria:
Safari has developed a portfolio of dominant retail centres, focussed on the high growth township areas. The sound performance of these centres is evidenced by low vacancies, strong sales densities and rental escalations achieved. Rental income is largely underpinned by national retailers (87% of GLA). Moreover, Safari is managed by a team with strong property development credentials and proven asset management expertise. The fund now comprises of six income generating assets, with the addition of the Soweto Day Hospital to the portfolio, from January 2016.
Developments and revamps/expansions have yielded strong rental income growth over the review period. Rental income (excluding straight line lease income adjustments) rose by 20% to R169m in F16, mainly attributable to greater GLA from which to generate rentals. Similarly, operating income increased by 18% to R124m in F16. The strong trading performance has also been borne out in robust rental escalations, which have averaged 8% over the past four years. Further to this, the average rental rate across Safari’s portfolio was R122/m² in F16, compared to the market average of R168/m², suggesting additional scope to raise rental rates.
Gearing metrics declined substantially, as debt was reduced to R53m using proceeds from the listing (1H F15). However, as credit from existing facilities has been drawn down to fund capex, debt increased to R634m at FYE16 (FYE15: R263m). Thus, the LTV rose to 31% at FYE16 (FYE15: 15%) and net debt to EBITDA rose to 365% (FYE15: 178%). Nevertheless, this is well within GCR’s benchmark for highly rated companies. Furthermore, Safari evidences strong access to capital as demonstrated by its recent equity raising, as well as its close banking relationship with ABSA, which allowed it to increase its credit facilities to R900m.
Upward ratings migration is constrained by the weak consumer environment, although stable medium to long term revenue and operating profit growth would be positively considered. The inclusion of additional income generating properties (including pipeline projects) that contribute materially to earnings would also help to diversify the portfolio. Conversely, given the small scale of the fund, underperformance at any centre could negatively impact group earnings and credit protection metrics. Delays and problems with any of the developments would also be negatively considered, particularly if they result in cash drain and rising gearing.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (July 2014)|
|Long term: BBB(ZA) Short term: A2(ZA)|
|Last rating (July 2015)|
|Long term: BBB(ZA); Short term: A2(ZA)|
|Sector Head: Corporate and Public Sector Ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, updated February 2016
Criteria for Rating Property Funds, updated May 2016
Safari Rating Reports, 2014-2015
RATING LIMITATIONS AND DISCLAIMERS
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|Capital||The sum of money that is invested to generate proceeds.|
|Debt||An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.|
|Equity||Equity is the holding or stake that shareholders have in a company. Equity capital is raised by the issue of new shares or by retaining profit.|
|Gearing||With regard to corporate analysis, gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds or by EBITDA.|
|International Scale Rating LC||International local currency (International LC) ratings measure the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled. Therefore, the rating does not take into account the possibility that it will not be able to convert local currency into foreign currency or make transfers between sovereign jurisdictions.|
|LC||An LC is a guarantee by a bank on behalf of a corporate customer that payment will be made if that entity cannot to meet its obligations.|
|Long-Term Rating||A long term rating reflects an issuer’s ability to meet its financial obligations over the following three to five year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.|
|Operating Profit||Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs.|
|Portfolio||A collection of investments held by an individual investor or financial institution. They may include stocks, bonds, futures contracts, options, real estate investments or any item that the holder believes will retain its value.|
|Short-Term Rating||A short term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.|
|Yield||Percentage return on an investment or security, usually calculated at an annual rate. Also an agricultural term describing output in terms of quantity of a crop.|
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
Safari Investments (RSA) Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to Safari Investments (RSA) Limited with no contestation of the ratings.
The information received from Safari Investments (RSA) Limited and other reliable third parties to accord the credit rating(s) included:
- Audited financial results of Company per 31 March 2016 (plus four years of comparative numbers)
- A breakdown of facilities available and related counterparties
- Corporate governance and enterprise risk framework
- Detailed performance metrics of the properties as at FYE16
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GCR affirms Safari Investments (RSA) Limited’s rating of BBB(ZA); Outlook Stable.